Shining glory: It's time to invest in gold

The idea of putting money into gold except in those few special occasions in your life when you buy jewellery may intrigue you at times.

However, the recent turmoil in the capital markets across the globe following 9/11 and the global slowdown have left the investor in the lurch.

In a declining interest rate environment (Greenspan's rate cuts?) and the tendency to align the rates of fixed and assured return instruments with market rates of interest, the investor's choice seems to be restricted to a large extent.

And thats where comes the relevance of gold as a form of investment as it acts as a hedge against inflation, deflation, stock market weakness and potential currency problems.

Says chartered accountant Samir Mogul: "An investor looking to diversify one's portfolio can do so by buying gold as it has a low-to-negative correlation to stocks and bonds. In fact, in times of recession and when the economic and/or financial outlook is uncertain, gold normally outperforms stocks due to flight for safety."

Nevertheless, some experts believe that although gold is a hedge against inflation it rarely beats inflation.

Gold is a long-term store of value, as well as a highly-liquid, internationally-recognized asset of last resort. Gold is also easy to buy and sell, any time, anywhere in the world.

There are discordant voices though.

Says Vinay Mehra from Mehra Sons Jewellers: "Entry-level cost of buying gold is high. Although gold is a great hedge against inflation, the value of gold over time hasn't changed much as a recent UN survey points out. Also, when you buy ornaments, you lose the labour charge when you give it back which doesn't arise when you hold it in bullion. "

The right time to buy gold is when you understand what it is and what it can do for your portfolio. As with any investment, it is always advisable to check the terms of the purchase agreement, procedures and prices offered by the dealer.

Prospective investors should consult their financial advisor regarding tax laws or other circumstances.

International refiners make it convenient for investors to own bullion by offering gold bars in a variety of weights and sizes, ranging from one troy ounce to 400 troy ounces, the size of an internationally-traded "London good delivery"bar. (One troy ounce equals 1.09714 regular, or avoirdupois ounces.)

Broker commissions on buying and selling gold bars are minimal, and in most cases, purchasing bars is the most cost-efficient means of owning gold. Bars bearing the "hallmark" (logo) of internationally recognized refiners are the easiest to sell. These refiners "assay" or test the metal for its purity or fineness.

The bars are generally stamped .995 (99.5 per cent pure gold) or higher purity, along with the individual bar's weight. Gold bullion bars can be bought from selected commercial banks, brokerage houses, and precious metals dealers.

Says Mogul: "Gold Bars are one of the safest means of buying gold. Similarly, on the flip side it can easily be sold with low transaction costs."

Gold bullion coins are popular with investors because they combine intrinsic value with artistic beauty. The bullion coin represents an investment in pure gold, and because it is legal tender, its authenticity is guaranteed by the country of origin.

The bullion coin bears a face value that is largely symbolic; its true value depends on its gold content and the daily price of gold. Bullion coins are minted in affordable weights such as 1/20, 1/10 , and one ounce. Coins make valuable gifts. Bullion coins can be easily bought and sold virtually anywhere in the world.

Prices for the most popular one-ounce coins are quoted daily in most of the world's newspapers. Prices for bullion coins are based on the underlying price of gold bullion, plus a small premium of 4-8 per cent.

Some popular bullion coins include the American Eagle, Australian Kangaroo Nugget, the Austrian Philharmonic, the Canadian MapleLeaf, and the South African Krugerrand. Banks and dealers make a market to buy and sell these bullion coins in much the same way as they do for regular bullion.

You can choose the method of purchase and storage that best meets your needs. For instance, you can take physical delivery (direct possession) and enjoy the security of having your investment in your own hands.

Or you can buy bullion through a storage program, in which case your broker, banker or dealer will use a secure, third-party depository to hold and protect your gold for a small fee.

Holding a gold storage account is an attractive alternative to purchasing physical metal. In the case of a gold storage account, an institution such as a commercial bank or a precious metals dealer has the obligation to deliver upon demand by the investor, a stated quantity and fineness of gold in accordance with the issuer's terms and conditions.